The Financial Intelligence and Analysis Unit has levied a €653,637 penalty on Ferratum Bank, an international provider of mobile banking and digital consumer and small business loans, distributed and managed by mobile devices.
The bank had already been fined €188,000 by the Malta Financial and Services Authority in 2018.
The FIAU reported findings from a compliance examination carried out between December 2018 and May 2019.
One of the shortcomings during the compliance review was that none of the bank’s customers were rated as ‘high-risk’. Although the bank said high-risk customers fell outside the risk appetite of the bank and were not accepted, it only referred to PEPs and sanctioned individuals as carrying a high risk. The FIAU insisted that other factors can also elevate the risk to high, either at the start of the relationship or throughout – such as significant and unexplained movement of funds, high net worth individuals, and material links to high-risk jurisdictions among others.
The FIAU also found a lack of adequate and comprehensive information on source of wealth (SOW) and expected source of funds (SOF), or the expected value and volume of the transactions that the customers would be undertaking. In certain instances, the bank did not even collect the customer’s occupation or their expected SOF, and only basic and generic information on the customer’s occupation, such as ‘businessman’ or ‘self-employed individual’. No SOW information was collected for 96% of mobile banking customers reviewed.
In the case of one EU individual – a law enforcement officer stationed outside the EU – with a salary bracket of €25,000-€50,000, the FIAU noted monthly transactions of €2,000-€6,000, which also included his wife’s salary from an EU bank account which he then transferred to her account with the bank. Since many ATM withdrawals were being made in a non-EU country, the bank queried the matter with the customer, suspecting fraud.
“However the bank confirmed that in its view, the withdrawals were not considered irregular, without any justification as to how it arrived at this conclusion,” the FIAU said.
“The pattern of the transactions taking place was in fact suspicious. The FIAU could not understand why an EU individual who was working in a non-EU jurisdiction required a bank account in Malta, and why his salary and that of his wife were being transferred to a Malta account for it to be then withdrawn in cash from ATMs located in the non-EU jurisdiction.”
The FIAU said this made it difficult to monitor the activity being carried out since the audit trail of the transactions was disrupted the minute the funds were withdrawn in cash. “The customer was creating an additional layer in the transaction cycle and eliminating any traceability with the cash withdrawals.”
Ferratum said it will appeal the decision. “The bank takes its responsibility towards its regulatory and supervisory authorities seriously. Considering the lapse of time and enhancements made to the bank’s processes and controls since the conclusion of the compliance examination in 2019, the FIAU’s decision was unexpected.”
The bank insisted, in a company statement, that since then it had carried out substantial investment in its internal control processes, three years on from the on-site visit.
“[Considering] the non-complex nature of its services and activities, the fact that it disagrees with the FIAU’s decision, as well as the increase in the number of human resources dedicated to this area, the Bank considers the FIAU’s decision to be disproportionate,” the bank said.
The bank, whose directors include former Bank of Valletta CEO Charles Borg, obtained its license as a credit institution in 2012, and today employs around 180 individuals. Its services include mainly low-value unsecured consumer loans to customers located within the EEA and retail deposits primarily from the German market.
The bank is owned by Multitude SE, which is listed in the Frankfurt Stock Exchange.
“This is the first time that the bank received an administrative penalty from the FIAU for breaches of any provisions of the financial crime prevention framework. The fine imposed by the FIAU on the Bank will not have any significant impact on the bank’s financial or capital position, which remains well capitalized and profitable.”